Tax Planning

Reduction in the lifetime allowance - PENSIONS

The reduction in lifetime allowance which takes effect on 6 April 2012 reduces the allowance from £1.8m to £1.5m. It is possible to elect for the old limit to continue to apply to your pension savings, but you must do so by the end of the tax year.  there can be no investment in pensions after 5 April 2012, and no increases in benefits other than those permitted by the legislation

Annual Investment Allowance Reduction (AIA)

Make full use of the enhanced annual investment allowance before it’s too late! If you leave the decision of whether to buy new equipment or plant and machinery until the end of your accounting year, you could get caught out by the changes to capital allowances which come into effect from April 2012*. Large purchases made from these dates to the end of your accounting period may not qualify in full for the 100% deduction against profits you are expecting.

AIA is a form of capital allowances which offers tax relief at 100% on all qualifying expenditure in the year of purchase. From April 2012 the current level of annual investment allowance is being reduced from £100,000 to £25,000. If your accounting year end coincides with the fiscal year there are no complications as all qualifying expenditure (up to £100,000) will receive a 100% deduction for income or corporation tax purposes. But what happens if your trading year straddles the fiscal year end? The answer is that that the AIA relief available is time proportioned and this may result in a loss of relief.

If your business has a chargeable period that spans the rate change the maximum allowance for the transitional period falls into 2 parts

• The AIA entitlement, based on the previous £100,000 annual cap for the portion of your accounting year falling before the relevant operative date (1st or 6th April).

• The AIA entitlement, based on the new £25,000 cap for the portion of the year falling on or after the relative operative date.